The Cyprus tax regime is very attractive for professionals and for enterprises operating all around the world. The advantages and deductions offered place Cyprus’s Tax regime as one of the most attractive and competitive in the world. A big advantage of Cyprus is the fact that is an EU member, operating under a secure legal framework and protecting entrepreneurship while promoting organic growth. The island’s advantageous tax rate coupled with an extensive list of double tax treaties (add a link to Cyprus double taxation Treaties places it high on the list of preferred jurisdictions for international tax planners.
1. PERSONAL TAX
Cyprus tax residents (individuals) enjoy the benefits of the various levels of tax rating according to their income, with 0% tax on yearly income up to €19,500. In addition, tax deductions and benefits are given to individuals willing to move permanently to Cyprus.
An individual who spends more than 183 days in Cyprus in a calendar year is considered a Cyprus tax resident. Days in and out of the Cyprus Republic are calculated as follows:
- The day of departing out of Cyprus is considered a day out of the republic
- The day of arrival in Cyprus in considered a day within the republic
- Arriving and departing out of the Cyprus in the same day counts as one day of residence in Cyprus
- Departing and returning in Cyprus the same day counts as a day out of the republic
- Foreign taxes paid can be credited against the personal income tax liability
A Cyprus tax resident is taxed on all the collected income from sources within or out of Cyprus. A non-Cyprus resident is taxed on certain income collected from sources in Cyprus.
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*Foreign pension is taxed at the rate of 5%. An annual exemption of €3,417 is granted.
1.1. Exemptions of Income tax for individuals
- 50% of the remuneration from any employment exercised in Cyprus by an individual who was not a resident of Cyprus before the starting period of the employment. Exemption applies for a period of 10 years provided that the annual remuneration exceeds €100,000.
- 20% of the remuneration (with a maximum amount €8,550 annually) from any employment exercised in Cyprus by an individual who was not a resident of Cyprus before the commencement of the employment, for 3 years since the 1st of January of the year following the year the employment started. For employments commencing after the 1st of January 2012 or later the exemption applies for a period of 5 years starting from the tax year following the year of commencement of the employment with the last eligible tax year being 2020. This exemption may not be claimed in addition to the immediately above mentioned
- 50% exemption for employment income.
- The whole amount of the remuneration from
○ Salaried services outside Cyprus for more than 90 days to a non-Cyprus resident employer or to a foreign permanent establishment of a Cyprus resident employer
○ Profits from the sale of securities
○ Lump sum received by way of retiring gratuity, commutation of pension or compensation for death or injuries
○ Capital sums accruing to individuals from any payments to approved funds (e.g provident funds)
○ Profits of a foreign permanent establishments under certain conditions
1.2 Tax Deductions on the income of individuals
- The whole amount is deducted from
○ Donations to approved charities
○ Contributions to trade unions or professional bodies
○ Loss of current year and previous years (for individuals required to prepared audited financial statements, current year losses and losses of the previous five years only may be deducted)
- 20% of income from property rental
- Up to 1/6 of the chargeable income regarding social insurance contributions, medical funds (maximum 1.5% of remuneration), pension and Provident fund contributions (maximum of 10% of remuneration) and life insurance (maximum 7% of the insured amount).
- Since the 1st of January 2017 any amount invested each tax year in approved innovative small and medium size enterprises, either directly or indirectly – Up to the 50% of taxable income as calculated prior to this deduction (maximum of €150.000 deductions per year). The amount of discount that was not used can be transferred and claimed in the next 5 years.
2. Corporate tax deductions
Expenses incurred wholly and exclusively in earning taxable income are deducted for corporate tax purposes.
The whole amount can be deducted from the following:
incurred for the direct or indirect acquisition of 100% of the share capital of a subsidiary company will be treated as deductible for income tax purposes
provided that the 100% subsidiary company does not own (directly or indirectly) any assets not used in the business. If the subsidiary owns (directly or
indirectly) assets not used in the business, the interest expense deduction is restricted to the amount which relates to assets used in the business.
ØDonations to approved charities (with receipts)
ØExpenses for scientific
researches including research for development that is carried out from small-middle size enterprises
ØEmployer’s contributions to social insurance and approved funds on employees’ salaries
- 80% of the net profit from royalty income, embedded income and other qualifying intangible assets
- 1% on the employees’ remuneration the employer contributes to medical funds for employees
- Up to 10% on employees’ remuneration of the employer’s contribution to provident/pension funds for employees
- Entertainment expenses for business purposes (the lower amount of €17,086 or 1% on the gross company income
2.1. Non-deductible corporate expenses
- Expenses the purpose of which was not the acquiring of income
- Private car expenses
- Interest applicable to the cost of acquiring a private vehicle regardless the use and on other assets that were not used for establishment purposes (whole amount for 7 years since the day of acquiring the relevant asset)
- Salaries provided within a tax year, and of which the contribution to social insurance or other approved funds were not paid within the same year
2.2. Losses carried forward
The tax loss occurred after a tax year and which cannot be set off against other income is carried forward subject to conditions and is set off against the profits of the next five years. The losses carried forward rule can be applied with the profits of another company (for the same year) of the group of companies – provided the companies are tax residents.
When is a company considered as a part of a Group of companies?
- One Cyprus tax resident company holding directly or indirectly at least 75% of the voting shares of another Cyprus tax resident company.
- Both of the companies are at least 75% (voting shares) held, directly or indirectly, by a third company.
As from 1 January 2015 interposition of a non-Cyprus tax resident companies will not affect the eligibility for group relief as long as such companies are tax resident of either an EU country or a country with which Cyprus has a double tax treaty or an exchange of information agreement (bilateral or multilateral).
A Cyprus tax resident company may also claim the tax losses of a group company which is tax resident in another EU country, provided such EU company firstly tries the all possibilities available to utilize its losses in its country of residence or in the country of any intermediary EU holding company.
A partnership or a sole trader transferring a business into a company can carry forward tax losses into the company for future utilization.
Losses from permanent establishments abroad can be set off with profits of the company in Cyprus. Subsequent profits of an exempt permanent establishment abroad are taxable up to the amount of losses allowed.
Disclaimer: This article has been prepared for information purposes only and does not constitute a substitution for professional advice. No responsibility can be accepted by the authors or the publishers for any loss occasioned by acting or refraining from acting on the basis of this information.